ECO402 Microeconomics

Mid Term Examination Spring 2006

Time Allowed: 90 Minutes

INSTRUCTIONS:
Please read the following instructions carefully before attempting any question:

All questions are compulsory.

This exam consists of 10 Multiple Choice Questions (MCQs) carrying 1

mark each,5 fill in the blanks carrying 1 mark each, 5 Short questions
carrying 3 marks each and 1 Descriptive questions carrying 10 marks.

You are required to show all the working of short questions as well as
Descriptive question.

This examination is closed book, closed notes, closed neighbors.

Do not ask any questions about the contents of this examination from
anyone.

You may wish to pace yourself with your own watch, but the Supervisor will
be the official timekeeper of the test.

Failure to comply with the Supervisors directions will result in your test being
cancelled. Please comply with supervisors directions to avoid any unpleasant
event.
Question No. 1

Which best expresses the law of demand?

Marks : 1

A higher price reduces demand

A lower price reduces demand
A higher price reduces quantity demanded
A lower price shifts the demand curve to the right

Question No. 2

Marks : 3

If a consumer starts in equilibrium in their consumption of apples and chocolate bars,

and the price of apples rises, what will happen to the quantity demanded of apples, and
why?
Question No. 3

Marks : 1

_____________is the additional utility gained from consuming one extra unit of a good or
service.
Question No. 4

Marks : 1

A firm will earn an economic profit if:

Its total sales revenue equals the cost of labor and raw materials
It produces its output utilizing the least-cost production method
It is regulated by government
Its total sales revenue exceeds the sum of all its economic costs

Question No. 5

Marks : 10

a). Define equilibrium.

b). If
QS = 1,800 + 240P
QD = 3,550 - 266P
Find out the equilibrium quantity and price. Also find out the elasticity of
demand and supply and show that elasticities are elastic or inelastic?

Question No. 6

Marks : 1

A market is characterized by:

Either down sloping demand or up sloping supply but not both

The exchange of goods and services, but not resources
Exchange between buyers and sellers
Face-to-face contact between buyers and sellers

Question No. 7

Marks : 1

The_________________shows how much firms wish to sell at different prices.

Question No. 8

Marks : 1

Two variables have a positive relationship if ___________________:

They move in opposite directions

They move in the same direction
One decreases when the other increases
One increases when the other decreases

Question No. 9

Marks : 3

What does production possibility frontier show?

Question No. 10

Marks : 1

The numerical measurement of a consumers preference is called_______________:

Satisfaction
Use
Pleasure

 Utility
Question No. 11

Marks : 3

Does the Laspeyres index always overstate the true cost of living index?
Question No. 12

Marks : 1

The two main branches of economics are _____________ and____________.

Question No. 13

Marks : 1

Profit is maximized at that point where total revenue is equal to--------------------_

Question No. 14

Marks : 1

If the supply of a product decreases and the demand for that product simultaneously
increases, then equilibrium:

Price must rise

Price must fall
Quantity must rise
Quantity must fall

Question No. 15

Marks : 3

Define elasticity. In which case elasticity is greater than 1?

Question No. 16

Marks : 1

Suppose that a 2% increase in income in the economy decreases the quantity demandedof
gadgets by 1% at every possible price. This implies that:
The supply of gadgets is elastic
Income elasticity is positive and gadgets are a normal good
Income elasticity is negative and gadgets are a normal good

 Income elasticity is negative and gadgets are an inferior good

Question No. 17

Marks : 1

Moving from left to right, the typical production possibilities curve has:

an increasingly steep negative slope

a decreasingly steep negative slope
an increasingly steep positive slope
a constant and negative slope

Question No. 18

Marks : 1

The price elasticity of demand measures the responsiveness of quantity demanded

to_____________.
Question No. 19

Marks : 1

Microeconomics:

Is particularly subject to the "fallacy of composition"

Is concerned with the economy as a whole
Studies how supply and demand determine prices in individual markets
Describes the aggregate flows of output and income

Question No. 20

Marks : 1

When movie ticket prices increase, families tend to spend more time at home watching
videos instead. This best reflects:

Diminishing marginal utility

The income effect
The rationing function of markets
The substitution effect

Question No. 21

Marks : 3

Define supply curve. What is the relationship between price and quantity supplied?